We live in challenging economic times which compel us to make hard financial choices and be more careful with money. This is yet another reason to start thinking about how to efficiently organize your family finances and optimize household expenses. The best way to get in control of your financial situation and avoid unnecessary stress is to build a realistic family budget. Designing a personalized financial plan you can adhere to over a long period of time is the first step towards restoring your family's financial stability and curbing excessive spending. The function of a household budget is to help you make wise money management decisions that can improve your family's current and future well-being.

Household budgeting doesn't necessarily have to be a major fret or an extremely complex process. While it's true that each family has diverse needs and wants deriving from its unique financial background, there are still some basic budget planning rules to follow in order to develop a realistic, easy to stick to and efficient family budget. With a little foresight, discipline and advance planning you'll be able to get a realistic look at where exactly your household income goes on a daily, weekly and monthly basis. With this information in hand, it will be much easier for you to identify areas where your family must cut back on unnecessary expenses so that you could reach your savings goals and use your hard earned money more effectively.

The key thing to remember is that household budgeting is a valuable financial planning tool as long as it doesn't get too complicated or hard to monitor. We have outlined a basic set of simple steps to follow in order to work out a feasible household budget that incorporates the specific needs and financial circumstances of your family members:

1. Track all your Income

In Theory: Take inventory of all your family's sources of monthly income, including salary, child support, interest, dividends and any other side earnings that come into your home. Add up your monthly expected income to get an idea of your family's total earnings. If a certain income source varies from month to month, choose the lowest value or calculate the average amount for at least past 3 months.

In Practice: InEx Finance lets you create as many customizable saving categories as you need. You can set a monthly budget for each category associated to your source of income, for instance: "Primary job", "Part-time job", "Interest payment", etc. You can even assign different color labels to your categories to easily distinguish them. While adding a new budget, the system displays your past six-month earnings for the selected category so that you can review them and decide on the correct income amount to be allocated. You can activate the automatic budget generation feature that will generate your budgets for you on the first of each month.

2. Track all your Expenses

In Theory: This step is crucial in family budget planning, so you should be prepared to dedicate some of your time if you want the end result to be successful. Generally expenses can be divided in 2 types: fixed expenses (e.g., a) monthly bills – electricity, mortgage or rent, insurance, cell phone, Internet, cable, debt payoff, etc; b) food; c) housing; d) transportation; e) clothes; f) healthcare, etc) and discretionary expenses (e.g., entertainment, hobbies, vacations, etc). You may also want to identify any occasional "out of pattern" expenses such as holiday gifts, house repair, car maintenance and so on. Be sure to keep track of all small and large expenses, since you may be amazed at how those seemingly little expenditures can really add up in a month. Don't forget to include all the expenses of each family member. Add up your family's monthly expenses to get an idea of how much your entire family spends on average during one month.

In Practice: InEx Finance offers powerful expense tracking tools to help you automate and control your family's spending. For each budgeted spending category it's possible to set system notifications to alert you whenever you log a new transaction that makes you go over your budget. This works as an efficient spending restraint, since it forces you to review your budget performance and cut back on expenses. InEx Finance money management software makes it easy for you to analyze the current status of all your budgeted income or spending categories. You can compare planned versus actual amounts to get a clear understanding of how closely you've adhered to your budget plans. The small graphical representation along with its percentage equivalent gives you at a glance information about where you currently stand with your household budgets.

3. Analyze your Budget Plan

In Theory: Now that you have collected all relevant information, deduct the total amount of your expenses from your family's total income. Here you have 3 possible scenarios: 1) if the result is a negative figure, then identify any categories where your spending could be reduced or spot any unnecessary expenses that could be eliminated; 2) if your expenses equal earnings, then you have a balanced budget (this budget type may be the ideal solution for your family if you have already included your savings goals or debt payoff in your spending, otherwise you have to think of some ways to tweak your budget plan so that you can put aside some money for a rainy day, an emergency fund or retirement ); 3) if you end up with a surplus, you may want to review your budget plan and consider increasing the planned amounts allocated to some spending categories that have been extremely trimmed down in the beginning (for instance, entertainment, hobbies), or you may simply use your surplus to contribute to your future financial goals.

In Practice: With InEx Finance it's easy to see how much money you have left in any budgeted category at the end of each month. With a click of your mouse on the category name you can review all the income or expense transactions accounted for in your family budget for any given time-frame and easily identify any unusual activity that has negatively affected your budget performance. Using the tags report gives you the possibility to better understand your spending habits and recognize areas that require improvement. The rollover feature enables you to carry over any spending balance left in a budgeted category to the next month, or simply transfer the money to your savings goals.

After you've managed to work out all the details of your family budget, the next things you have to focus on are accurate record keeping on a daily basis (this concerns every member of your family), regular tracking of your budget performance (to make sure you follow your predefined plan) and constant monitoring of your spending/saving activity (to timely detect any unusual patterns or deviations from the original course). Your household budgeting endeavors are bound to success if you follow these golden rules:

  • Prioritize your family's needs – learn how to differentiate your wants from your needs. Don't be afraid to bring a little austerity in your family's habitual lifestyle if you think the end result is worth it (saving for your kid's college, buying a new car, etc). Try to understand what your family's basic necessities of life are and outline the things it can painlessly do without.
  • Keep your budget simple – if you don't want household budget planning to become a challenge too hard to overcome, then don't try to complicate things unnecessarily. In fact, if your budget is too difficult, then chances are high that you won't be able to stick to it. The level of your engagement and motivation will gradually decline as a result of your budget failure. Sometimes even simple tracking of monthly income and expenses may be sufficient to keep your family's financial situation under control.
  • Make your budget flexible – while keeping your budget in sync with your family's spending is essential, don't forget to account for the unexpected. Life can always hit you with unpredicted expenses, so you'd better be prepared in advance to handle such situations head-on than suffer the consequences later. Build a flexible family budget by allowing it some breathing room, so that you can cover any unexpected expenses without being seriously affected.
  • Be realistic – this it probably the number one rule in any budget planning strategy. If you want a family budget that works, then be honest with yourself, look at things practically and use sound judgment. Don't tend to go overboard while cutting down on expenses and don't try to intentionally ignore certain spending areas simply because you think you'll eliminate them sooner or later. Use cold facts, historical data analysis and common sense in order to draft a realistic household budget.

Tags budget
Published at April 13, 2012 20:48
Updated at April 13, 2012 20:48

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